Whether real seignorage revenue increases when the rate of money growth increases depends on whether

Whether real seignorage revenue increases when the rate of money growth increases depends on whether

a. the rise in the real supply of currency outweighs the decline in inflation.
b. the rise in inflation ratio outweighs the decline in the real supply of currency.
c. the rise in inflation outweighs the decline in real money holdings.
d. the rise in real money holdings outweighs the decline in inflation.


Answer: C

Consider an economy that has the following monetary data.

Consider an economy that has the following monetary data.

Currency held by the nonbank public = $300
Bank reserves = $50
Monetary base = $350
Deposits = $700
Money supply = $1000

The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the nominal value of seignorage over the year?

a. $70
b. $10
c. $60
d. $200




Answer: A

Consider an economy that has the following monetary data.

Consider an economy that has the following monetary data.

Currency held by the nonbank public = $300
Bank reserves = $50
Monetary base = $350
Deposits = $700
Money supply = $1000

The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the cost to the public of the inflation tax?



a. $140
b. $60
c. $200
d. $190




Answer: C

Real money demand in the economy is given by L = 0.5Y - 2500i, where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. What is the maximum amount of seignorage revenue?

Real money demand in the economy is given by
L = 0.5Y - 2500i,
where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P. Suppose that Y equals 1000 and the real interest rate is 0.02. What is the maximum amount of seignorage revenue?

a. 22.25
b. 20.25
c. 24.75
d. 11.11



Answer: B